5 Questions to Ask the Owner of a Business for Sale

by Vanessa Lovie 10th of June, 2022

5 Questions to Ask the Owner of a Business for Sale

Browsing around for a business for sale can be an exciting experience. If you’re currently working and dreaming about purchasing a business for sale you will need to consider all the options. Becoming an owner is a big decision that can come with many rewards, but there are also risks you need to be aware of. If this is your first time purchasing a company here are some important questions you should ask the owner of the business for sale.

1. How long have you owned the business for sale?

The current owner may have started the company from scratch or purchased it from a previous owner. Since the pandemic, Australia has seen a record number of businesses launched, with 365,000 new businesses started in 2021, while 277,674 businesses closed according to ABS.

Some would consider this an entrepreneurial enterprise boom as people look to start businesses and work for themselves. What is important for anyone looking at a business for sale is to know how long the enterprise has been established. Even though a lot of work has gone into building a company, it's important to remember that 60% of businesses don’t survive beyond 5 years.

So, talk to the current owner of the business for sale, how long have they owned the company? Did they start it or was it purchased from someone else? While buying an enterprise established under 5 years may not be a bad decision, you need to look at it from all angles and ensure it is a stable investment and will give you the return on investment you expect.

2. What is your current Leasing Arrangement?

Leasing can be a big part of a company’s expenses. You need to be sure the current lease is transferrable and understand if there are any rent increases or expenses anticipated such as shop-fit outs. A business for sale’s value can be highly tied to the lease in place, if you are looking to buy a cafe you need to be sure the lease is long enough for you to continue. If you have to move the cafe, you may lose foot traffic and the total income and value may decrease.

3. Do you have a training period?

Walking into a new venture, you’ll definitely want to get as much knowledge and expertise from the current owners as possible. Especially if you are looking at a business for sale in a service-based industry, it's important to meet your major clients, suppliers and business contacts.

This will ensure a smoother transition into the rhythm. You want to ensure the business for sale will continue to be as profitable (and if not more) when you are the new owner, and that you don’t lose revenue due to the change of ownership.

You want to ensure at least 2 weeks of training and a handover period are included in the sale.

5 questions to ask current business owner of a sale

4. What equipment leases and loans do you have?

When purchasing a business for sale, you may also sign onto all the debts and contracts the company currently has. This could be things such as a car lease, equipment lease or a contract to order $50,000 in products every month. You need to know what current arrangements and agreements your company has. This will help you to make better-informed decisions. This will be part of the due diligence process when you review all aspects of the enterprise.

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5. What are your plans after you sell?

You want to get a sense of why the business owner is selling and what their plans are next. If you are purchasing an opportunity such as a hair salon for sale, you want to be sure they won't open a salon in the same region and your clients will follow them.

You can put a ‘non-compete’ clause in your sale contracts, but you need to be very careful and don't just ‘trust’ in people's words. Getting an understanding of why they are selling, and what their next plans are, might help you to ascertain whether this is a good company for you to buy.

Purchasing a business for sale is a big decision and can be very exciting for new owners. There are a lot of benefits to buying an established business vs starting from scratch. These 5 questions will help you to understand the current owner's intentions and start the process of becoming a company owner. Make sure you always complete due diligence and work with a professional when looking at any business for sale.

Tags: selling acquisition small business entrepreneurs